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Commentary

Count Every Penny in Coal Leasing Debate


     
 Print 

Last week, the Department of the Interior’s Inspector General (IG) released a report outlining perceived shortcomings in the Bureau of Land Management’s (BLM’s) supervision of coal leasing. Rep. Ed Markey (D-Mass.) promptly called a hearing on the issue, which has since been postponed.

Upon the release of this report, the news media and advocates on both sides of the issue have focused on one of the report’s flashier assertions: that over the past dozen years BLM’s alleged undervaluation of coal deposits leased in noncompetitive modifications of existing mining rights on public lands resulted lost federal revenue of $60 million. (That’s “million,” with an “m.”) Much of the coal in question is located in the Powder River Basin, a coal-rich region that straddles southeast Montana and northeast Wyoming. The basin contains one of the largest known coal deposits in the world and accounts for about 40 percent of the nation’s coal supplies.

Once mining rights have been sold, the BLM allows coal companies to add up to 960 acres of land to the original lease without competitive bidding. Therein lies the rub.

The crux of the IG’s report is a claim that the BLM undervalued by as much as 80 percent the coal deposits in the tracts acquired through lease modifications and in the process bypassed $60 million in royalties and fees since 2001.

But, the BLM’s own rules for modifying coal-mining leases assumes that the coal seams located in the supplementary tracts are “less desirable” than those in the original lease owing to lesser quality, accessibility, or both. In other words, acreage containing coal that is known to be inferior is made available to mining companies through a noncompetitive process in the interest of encouraging development of coal deposits where such development would otherwise be viewed as uneconomic.

Lacking sufficient documentation, the IG’s report admits that it is impossible to gauge accurately the fair market value of the inferior coal deposits in question. In the absence of such information, the IG assumed dubiously that the value of the coal in the acreage added to a lease is the same as the coal in the original lease.

Also omitted from the IG’s report is the very inconvenient truth that the “blind bidding” process utilized in noncompetitive lease extensions frequently means that coal companies bid more than the fair market value established by the BLM. Since bids must meet or exceed that value to be accepted, revenues are generated on a regular basis.

In its report, the IG says that, given the massive scale of leasing operations, every penny counts, and even a one-cent disparity can result in a $3 million revenue difference. If this is the case, shouldn’t all of the extra pennies be counted as well?

Any consideration of the IG’s report—and its estimate that $60 million in revenue was bypassed over the course of a dozen years—must be put in context. The federal government collected $2.4 billion from coal royalties and lease payments in 2012 alone and $4.8 billion over the past three years. (That’s “billion” with a “b”.)

These revenues are rising sharply, too, as exports to Asian markets expand. As the New York Times notes, approval of new coal export projects will add significantly more every year than $60 million to the federal treasury.

Certainly more than $60 million.


William F. Shughart II is a Research Director and Senior Fellow at The Independent Institute, J. Fish Smith Professor in Public Choice in the Jon M. Huntsman School of Business at Utah State University, and editor of the Independent Institute book, Taxing Choice: The Predatory Politics of Fiscal Discrimination.


  From William F. Shughart II
TAXING CHOICE: The Predatory Politics of Fiscal Discrimination
So-called “sin taxes”—the taxing of certain products, like alcohol and tobacco, that are deemed to be “politically incorrect”—have long been a favorite way for politicians to fund programs benefiting special interest groups. But this concept has been applied to such “sinful” products as soft drinks, margarine, telephone calls, airline tickets, and even fishing gear. What is the true record of this selective, often punitive, approach to taxation?






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